The number of first-time buyers hoping to boost their purchasing power by joining forces with a friend is on the up. In fact, our recent survey showed nearly one in five of us (18%) are considering buddying up to get on the property ladder.
Rising house prices and the need for large deposits are behind this sudden surge as more and more people find it difficult, if not impossible, to purchase property alone. But, as with anything there are important pros and cons to consider.
Here, CEO of My Online Estate Agent, David Grundy, shares his ten top tips on what you need to consider before deciding whether to buy property with a friend:
1) Try renting property together first
It is a good idea to try renting together first, for at least a period of six months, to make sure you and your friend are compatible living partners – after all you never truly know somebody until you’ve lived with them. If the trial works well you can both go into the commitment confident your joint ownership won’t end bitterly or affect your friendship.
2) Agree the basics from the beginning
Engage in frank and honest discussions before anything is confirmed. Important agreements you need to make in advance include the location you are looking to buy in, the price you are willing to stretch to, and how long you are planning to live together. Agreeing these points up front will make the process of finding, buying, and owning a property together much easier.
3) Have an open discussion about your financial affairs
Honesty is the best policy when looking to enter into joint ownership. All parties involved are responsible for mortgage payments, so be up front about your financial situation. If one person defaults on their share of the mortgage payments, you could also be liable and it could affect your credit rating in the long run. Be sure you both check your credit history before moving in as this could affect your plans. A poor credit score can impact on meeting collective mortgage requirements, which in turn could result in a joint application being refused by a lender.
4) Draw up official documentation
Don’t forget no matter how close you are as friends, buying a house is a business transaction that requires an intense and long-term financial commitment. Only purchase the property once you have the right legal documentation drawn up by a solicitor. This may include a declaration of trust or co-habitation agreement outlining both of your rights and obligations.
5) Consider a joint bank account
Setting up a joint bank account could have many benefits and will make the process of making mortgage payments, as well as other shared expenses, much easier. It will also help you keep track of all your outgoing payments and expenses. Don’t forget to keep adequate records of everything, from how much you each put into the deposit to what you’re individually paying each month, this will guarantee greater protection for both of you in the long-term.
If you are both putting in different amounts to the deposit and upkeep of the house you will need to work out the proportion each equates too, so you know how the proceeds should be split should you have to sell the property.
6) Be prepared for the worst
Prepare for the unexpected to make sure your venture doesn’t come to a bitter end. Unpredictable events, such as one of you being unable to make payments due to a job loss, or one of you wanting to sell up and move on while the other wants to stay can create problems. Consult lawyers about a co-ownership contract in advance, where it is outlined and agreed exactly what should happen if there are any problems down the line.
7) Agree house rules
Make sure you set out the house rules from the start. Discuss and agree everything from whether partners are allowed to stay overnight, to whether pets and smoking are allowed in the property. One of you might be a night owl or party animal, make sure you talk upfront from the beginning about what house behaviour is acceptable and what could potentially cause problems further down the line.
8) Protect your assets
As you are both likely to be bringing your personal belongings into the property it is advised to get an inventory. Outline which items are personally owned and which are shared and agree how to split communal items should either on you decide to move on.
9) Think your options through thoroughly
There are different ways to jointly own a property, which will have different effects should one person wish to move on. Owning the property as joint tenants means the property belongs to you and your friend jointly, so you cannot re-mortgage or sell the property without the other’s permission. However, owning the property as tenants in common, whilst still meaning you own the property together, also means you own individually a specific share of its value which you can give away, sell, or mortgage.
Always go into the investment with eyes wide open. Lenders are now offering an ever increasing number of products targeted at joint mortgages, or mortgages designed specifically for co-owners. Seeking independent financial advice is a great way to make sure you have sight of everything currently on offer in the market will ensure you get the best deal for your individual circumstances.
10) See it as a long term investment
Think long term and select a property that will make a good future investment. If you decide to move on you can split the profits or alternatively you may wish to rent it out if you are unable to sell – so a spacious property in the right location will work well for you and your friend regardless of the future outcome.
When you are ready to move on it could mean you each make enough money from the sale to put down a deposit on your own house.
Click here to read more property advice from My Online Estate Agent.